The survey - which shows that market towns are doing worse than other settlements - has alarmed ministers, who in many cases represent them in parliament.
It places the blame firmly on the Government's planning, transport and economic policies and warns that, unless these change, some market towns could fall into the "spiral of decline" that has hit town centres in the United States.
Next week, as a result of the survey, the Government's Rural Development Commission is financing a conference to consider how to rescue the towns.
The year-long survey - carried out by the Urban and Economic Development Group for the Department of the Environment - examined 338 towns and cities in England and Wales. It found that market towns were making less progress than large cities, suburban centres, industrial towns, or historic towns and resorts - even though their populations are rising.
Only 3 per cent of market towns could be described as "vibrant" compared with more than a third of large cities. And more than one in every seven of them were to be found to be actually "declining".
Group director Nicholas Falk said last week: "Everyone is surprised that so many market towns are declining.
"This is something that has only arisen in the last few years. In the past most felt they were improving."
Part of the problem lies in the history of market towns. In 1285 Edward I expelled markets from churchyards and they set up around market crosses.
Towns grew up around them and, until now, they have retained the same main raison d'etre, as the places local people came to to buy food.
This, the survey shows, is now being destroyed by the spread of out- of-town superstores. .
Despite government pledges to curb them, planning permission has already been granted - as the Independent on Sunday revealed in December - to build another 400 in the next two years.
Market towns also used to be the hubs of transport networks, but the rise of the car and decline of buses and trains, encouraged by Government policies, have negated this.
The report says that some market towns are in danger of going into a "vicious cycle of decline" like inner-city areas and adds: "The ultimate fear is that they could end up like many American town centres."
The alternative, it says, is to follow the model of continental Europe where towns are still vibrant because old buildings are being restored, people have been encouraged to live close to the centre, and cars are banned from central streets.Reuse content